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GST, monsoon to ensure cement prices remain subdued in near term
Business Standard  |  May 31, 2017

Avishek Rakshit | Kolkata

The coming monsoon, labour shortage and ambiguity around the goods and services tax (GST) is poised to keep cement prices subdued in the coming months, barring some upward movement in the west and east.

 

“The effect on prices will be multi-fold. With the monsoon, the demand is likely to go down, which will pull down prices marginally. And, the dealer network will take some time to adjust to the new tax regime, which will affect volume,” an analyst said.

 

They and a section of the industry expect average prices to remain muted and not fall beyond the March levels.

 

“Dealers in east India and the Andhra-Telangana region report pressure on cement companies from government agencies to cut prices for supplies to government projects. Some also indicated that ahead of GST implementation, dealers would go light on inventory in June, impacting sales,” said Rajesh Kumar Ravi, research analyst with Centrum Broking.

 

According to Centrum, average pan-India trade prices rose seven per cent to Rs 340 a bag in April (month-on-month), led by a large price rebound in the north, east and west regions.

 

“Overall, dealers indicated supply discipline was the key reason for the sharp price increase in March and April across all markets. However, the spurt has started to impact sales offtake since late April,” Ravi added.

 

Sector officials say demand started tapering in May as compared to last month, primarily on account of higher prices of cement and sand, and labour shortage in many places.

 

A section also think the monsoon would buffer the GST impact. “Demand is anyway going to be slow in the monsoon and GST is going to be implemented around this time. Thus, the timing of GST has provided a blanket,” said Vivek Chawla, chief executive at Emami Cement.

 

Sushil Mohta, managing director of Merlin Group, a real estate major, said the net impact of the 28 per cent (highest category) GST rate for cement would vary with realty pricing, in turn impacting the demand for cement.

 

 For properties at Rs 4,000-5,000 a sq ft, the new tax regime would be neutral. However, realty prices would increase by around Rs 500 a sq ft for properties priced at Rs 10,000 a sq ft. For property priced at Rs 20,000 a sq ft, prices will go up by Rs 1,500 a sq ft.

 

“However, post monsoon, the affordable housing segment and the government’s push for infrastructure development will drive cement sales,” said Mohta.

 

It is estimated that around two million houses are constructed yearly in the country. While cement comprises 15-20 per cent of the overall cost for an apartment it is about a third for individual houses.